Apple Inc. issued a wider-than-usual sales forecast to reflect what Chief Executive Officer Tim Cook called “uncertainty” caused by a virus that’s cutting retail traffic, shutting stores and prompting the company to limit employee travel in China, one of its most important markets.
The company is also taking steps to make up for production shortages, particularly in Wuhan, the central Chinese city where the coronavirus originated and home to some of the company’s suppliers, Cook said on a conference call discussing recent results. Sales in the current period will be $63 billion to $67 billion. While that’s higher than analysts predicted, it’s also a wider range than the company tends to forecast.
“We do have some suppliers in the Wuhan area. All of the suppliers there are alternate sources and we’re obviously working on mitigation plans to make up any expected production loss,” Cook said. “We factored our best thinking in the guidance that we provided you. With respect to supply sources that are outside the Wuhan area, the impact is less clear at this time.”
The CEO has led Apple to a remarkable comeback in the past year, reviving iPhone sales, dodging the worst of a U.S.-China trade war and creating a new gadget hit with AirPods. The company’s holiday-quarter revenue crushed Wall Street expectations, with double-digit percentage sales growth from iPhones, wearables and services in mainland China.
However, the deadly, spreading coronavirus is a new challenge for the company, which has most of its hardware made in China. Discussion of the virus was one of the few dour notes during an otherwise upbeat earnings call with analysts on Tuesday. Authorities have placed strict limits on travel, and airlines are suspending flights to China, taking a toll on businesses across the region. Almost 6,000 people have been infected in mainland China, and at least 132 have died.
“For now, supply chains for smartphones seem OK, but that can change in a flash,” said Neil Mawston, executive director of the global wireless practice at Strategy Analytics. “If any lockdown spreads and extends well into February or even March, then supply chains could start to get tight.”
Smartphone factories typically hold two to eight weeks of component or device inventory, so there will be some buffer, at least in the short-term, he added.
After an extended Chinese Lunar New Year Holiday, Cook said factories are reopening on Feb. 10, rather than at the end of January. Apple has tried to account for this “delayed start up” through its wider sales forecast, the CEO said.
Apple has closed one retail store in China and some that are still open have reduced operating hours. The company is “deep cleaning” stores and has begun checking employees’ temperatures, Cook said. Last week, it also began limiting employee travel in affected areas to business-critical situations, he added.
This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.